Topic Exchange Rate Fluctuations Of Rupee Vs.

Dollars

Rupee Vs US Dollar: How the Exchange Rate is Determined and Its Impact
All of us have seen 20% increase in the value of dollar against rupee within a year and it is fluctuating these days within a small range. Someone has asked in the comments section about what determines the exchange rate and how it is fixed and I would like to provide some of my thoughts in relation to that. What determines US Dollar exchange rate? There is nothing extravagant to tell you about this as the rate is determined by market forces just like how the price of goods and commodities is fixed. The value of any currency is based on the demand for it. If the people buy more of a particular currency, value of that currency increases vice versa. The same thing holds true in case of US Dollar Vs INR as well. There are few other factors that play a role in determining the exchange rate particularly when you leave the currency value to the market forces and I will list them below. Growth of the Economy Inflation Strength of the Economy including Export and Import Employment / Unemployment Government Public Debt Interest Rates Sometimes speculation and fear. Again all these factors either increase or decrease the demand for US Dollar or any other currency. If all the factors mentioned above are favorable, people across the world get confident about the stability of a particular country and investment climate, which in turn creates the demand for the currency. Example: Rupee appreciated significantly in 2006 2007 and the first seven factors I have mentioned above were the reasons for the Rupee appreciation since India had stable government with favorable economic climate. USA and other multi-national companies started investing in India and they bought more Indian Rupees and the demand for rupee increased which in turn appreciated the rupee value.

What if a country does not have all these? People will not have confidence in that country and the demand for the currency will come to a halt and then we will see a list of failed nations. Example: Zimbabwe. You might have read in news that a loaf of bread in Zimbabwe cost 1 million Zimbabwean dollar which means nobody values that currency in essence. But what about the eighth factor speculation and fear? Thats what made the US Dollar appreciate 20% versus most of the international currencies in 2008 2009. US Dollar Appreciation To recap, I have mentioned that Demand for the currency increases the value of that particular currency. So, what made the people to demand for more US Dollar? Thats where speculation and fear came into play and I list out few points that were responsible for recent US Dollar appreciation. 1. During tough economic times, people get scared and they start moving all their foreign currency assets to more stable currency like US Dollar. 2. US Based Mutual Funds, Hedge Funds and stock investors played a huge role as well. US Funds invested huge amount of money in India during 2003 2007 period, but the funds saw a huge redemption pressure due to the fear of retail investors in US. People invested in mutual funds and hedge funds panicked and started redeeming the units and the Funds were in a huge liquidity crisis. So, they started dumping the Indian stocks and converted all the currency in to US Dollar which created so much demand in a quick time which in turn increased the value of dollar. 3. International currency traders and speculators wanted to take advantage of the rising value and they started buying more and more US Dollar.

Market Forces Vs Central Bank While most of the countries let the market forces (Demand and Supply) to determine the currency value, some countries like China had fixed currency value for a long time before easing control over it though with a limited scope. Main reason for that was to

have a stable balance of payment. Even RBI can regulate the exchange rate to an extent by adjusting the foreign exchange reserves. Impact of Exchange Rates: Exchange rates impact in many ways starting from reduced sales for companies to more buying power for individuals. I will explain this with couple of examples. Exports and Imports get affected Strong dollar reduces the export value of US Companies and likewise strong rupee reduces the export value of Indian companies. This is what happened in 2007 2008 with Indian companies particularly in IT and Textile sector. Example: Tirupur is the Textile Capital of India and lets take a company called ABC Textiles which makes inners. Assume ABC had agreed to supply 10 inners to Macys in US @ $100 per piece in 2004 when the Rupee value against the dollar was 46. ABC would have earned Rs.46000 in 2004 by supplying 10 inners. But suddenly the Rupee value increased and in 2007 Rupee value was 40 against a US Dollar (You are able to buy 1 dollar by giving Rs.40 instead of Rs.46). ABC would now earn just Rs.40000 for supplying the same 10 inners and it gets affected by reduced revenues. Strong currency makes the imports cheaper. Take another example where KS Oils imports 10 litres of oil from US Company US Oils @ $10 per litre in 2004 when the exchange rate was Rs. 46 Vs US Dollar, which means KS Oils imported 10 litres of oil by paying Rs.4600 (100 * 46). In 2007 rupee value has increased and the same 10 litre of oil now costs KS Oils only Rs.4000. So, exchange rates have its effect on imports and exports. Buying Power Assume a traveler from India visited US in 2004 with Rs. 46000. He could have bought goods worth $1000 in 2004. But assume the same traveler visited US again in 2007 with the same Rs.46000. In 2007 he could have bought goods worth $1150. Of course there could have been either increase or decrease in prices of individual items based on inflation or deflation. But the essence is, exchange rates affect buying power as well. Impact of Exchange Rate on Stocks As I said above strong currency will reduce the sales and it will have an impact on company earnings particularly when company operates across many geographics. Example: When rupee value appreciated in 2007 - 2008, all the Indian IT, Pharma and Textile exporters faced huge foreign exchange loses and it reduced the earnings and thus the share price. Now, the rupee value against dollar has decreased and all these companies enjoy more earnings due to better foreign exchange rate

United States Dollar vs Indian R News

Latest United States Dollar vs Indian R News Headlines Date Time Sourc Headline e More USDINR News

05/31/20 12:24P RTTF Rupee Off 8-day High Against US Dollar 11 M 2 05/27/20 10:45A RTTF Indian Rupee Slightly Off 2-day High Against Dollar 11 M 2 05/27/20 10:45A RTTF Indian Rupee Slightly Off 2-day High Against Dollar 11 M 2 05/26/20 10:34A RTTF Indian Rupee Slightly Down Against Dollar 11 M 2 05/25/20 RTTF 5:53PM Indian Rupee At 3-month Low Against US Dollar 11 2 05/25/20 10:07A RTTF Indian Rupee Falls To More Than 2-month Low 11 M 2 Against U.S. Dollar 05/24/20 10:20A RTTF Indian Rupee Little Changed Against U.S. Dollar 11 M 2 05/23/20 RTTF 5:22PM Indian Rupee At Fresh 2-month Low Against Dollar 11 2 05/23/20 10:47A RTTF Indian Rupee Slides To Fresh 2-month Low Against 11 M 2 Dollar 05/20/20 RTTF 5:26PM Rupee Off 4-day High Against US Dollar 11 2 05/20/20 10:00A RTTF Indian Rupee Slightly Off 4-day High Against U.S. 11 M 2 Dollar 05/19/20 RTTF 4:53PM Indian Rupee Pares Gains Against US Dollar 11 2

Latest United States Dollar vs Indian R Stock Trade

Type

Table of 1 US Dollar to Indian Rupee Exchange Rate

Table of 1 US Dollar to Indian Rupee Exchange Rate: Date Monday 30 May 2011 Sunday 29 May 2011 Saturday 28 May 2011 Friday 27 May 2011 Thursday 26 May 2011 Wednesday 25 May 2011 US Dollar Indian Rupee 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 45.1214 INR 45.0612 INR 45.0612 INR 45.0612 INR 45.3577 INR 45.1991 INR

Updated: 31/05/11 12:57 Link USD INR rate for 30/05/2011 USD INR rate for 29/05/2011 USD INR rate for 28/05/2011 USD INR rate for 27/05/2011 USD INR rate for 26/05/2011 USD INR rate for 25/05/2011

Tuesday 24 May 2011 Monday 23 May 2011 Sunday 22 May 2011 Saturday 21 May 2011 Friday 20 May 2011 Thursday 19 May 2011 Wednesday 18 May 2011 Tuesday 17 May 2011 Monday 16 May 2011 Sunday 15 May 2011 Saturday 14 May 2011 Friday 13 May 2011 Thursday 12 May 2011 Wednesday 11 May 2011 Tuesday 10 May 2011 Monday 9 May 2011 Sunday 8 May 2011 Saturday 7 May 2011 Friday 6 May 2011 Thursday 5 May 2011 Wednesday 4 May 2011 Tuesday 3 May 2011 Monday 2 May 2011 Sunday 1 May 2011 Saturday 30 April 2011

1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD =

45.1563 INR 45.3654 INR 45.0492 INR 44.9992 INR 44.9992 INR 45.0659 INR 45.0062 INR 45.015 INR 45.2412 INR 45.1995 INR 45.1437 INR 44.8501 INR 44.737 INR 44.8187 INR 44.7805 INR 44.6191 INR 44.8087 INR 44.7649 INR 44.7649 INR 44.9546 INR 44.6546 INR 44.3556 INR 44.3638 INR 44.1892 INR 44.1364 INR

USD INR rate for 24/05/2011 USD INR rate for 23/05/2011 USD INR rate for 22/05/2011 USD INR rate for 21/05/2011 USD INR rate for 20/05/2011 USD INR rate for 19/05/2011 USD INR rate for 18/05/2011 USD INR rate for 17/05/2011 USD INR rate for 16/05/2011 USD INR rate for 15/05/2011 USD INR rate for 14/05/2011 USD INR rate for 13/05/2011 USD INR rate for 12/05/2011 USD INR rate for 11/05/2011 USD INR rate for 10/05/2011 USD INR rate for 09/05/2011 USD INR rate for 08/05/2011 USD INR rate for 07/05/2011 USD INR rate for 06/05/2011 USD INR rate for 05/05/2011 USD INR rate for 04/05/2011 USD INR rate for 03/05/2011 USD INR rate for 02/05/2011 USD INR rate for 01/05/2011 USD INR rate for 30/04/2011

Friday 29 April 2011 Thursday 28 April 2011 Wednesday 27 April 2011 Tuesday 26 April 2011 Monday 25 April 2011 Sunday 24 April 2011 Saturday 23 April 2011 Friday 22 April 2011 Thursday 21 April 2011 Wednesday 20 April 2011 Tuesday 19 April 2011 Monday 18 April 2011 Sunday 17 April 2011 Saturday 16 April 2011 Friday 15 April 2011 Thursday 14 April 2011 Wednesday 13 April 2011 Tuesday 12 April 2011 Monday 11 April 2011 Sunday 10 April 2011 Saturday 9 April 2011 Friday 8 April 2011 Thursday 7 April 2011 Wednesday 6 April 2011 Tuesday 5 April 2011

1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD = 1 USD =

44.1364 INR 44.3563 INR 44.2294 INR 44.5654 INR 44.5243 INR 44.256 INR 44.3043 INR 44.3043 INR 44.3324 INR 44.1558 INR 44.4139 INR 44.5202 INR 44.4458 INR 44.4077 INR 44.4077 INR 44.5257 INR 44.3796 INR 44.5667 INR 44.4098 INR 44.0021 INR 43.9725 INR 43.9648 INR 44.2612 INR 44.1755 INR 44.2478 INR

USD INR rate for 29/04/2011 USD INR rate for 28/04/2011 USD INR rate for 27/04/2011 USD INR rate for 26/04/2011 USD INR rate for 25/04/2011 USD INR rate for 24/04/2011 USD INR rate for 23/04/2011 USD INR rate for 22/04/2011 USD INR rate for 21/04/2011 USD INR rate for 20/04/2011 USD INR rate for 19/04/2011 USD INR rate for 18/04/2011 USD INR rate for 17/04/2011 USD INR rate for 16/04/2011 USD INR rate for 15/04/2011 USD INR rate for 14/04/2011 USD INR rate for 13/04/2011 USD INR rate for 12/04/2011 USD INR rate for 11/04/2011 USD INR rate for 10/04/2011 USD INR rate for 09/04/2011 USD INR rate for 08/04/2011 USD INR rate for 07/04/2011 USD INR rate for 06/04/2011 USD INR rate for 05/04/2011

Monday 4 April 2011 Sunday 3 April 2011 Saturday 2 April 2011 Friday 1 April 2011

1 USD = 1 USD = 1 USD = 1 USD =

44.2306 INR 44.44 INR 44.4593 INR 44.4633 INR

USD INR rate for 04/04/2011 USD INR rate for 03/04/2011 USD INR rate for 02/04/2011 USD INR rate for 01/04/2011